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National Vision's Store Launches on Track Despite Cost Woes

Zacks Equity Research

On Aug 22, we initiated a research report on National Vision Holdings, Inc. EYE. The company has been continuously witnessing positive comparable store sales (comps) growth. However, rising costs can exert pressure on the bottom line of this Zacks Rank #2 (Buy) company.

National Vision has been consistently benefiting from positive comparable store sales (comps) growth. Over the last 70 consecutive quarters, comps have shown steady growth, led by a stable in-store performance. In second-quarter 2019, adjusted comparable store sales growth was 3.8%. This upside was driven by a 0.3% comparable increase in Military brand. Comps growth was backed by the rising average ticket and customer transactions.

During the quarter, National Vision saw solid comps in its growth and popular brands. In this regard, America's Best and Eyeglass World delivered gains of 4.5% and 5.2%, respectively, during the quarter. Involvement in vision insurance programs continues to be a positive comps driver for the company. For 2019, National Vision expects adjusted comparable store sales growth of 3-5%.

National Vision Holdings, Inc. Price

National Vision Holdings, Inc. Price

National Vision Holdings, Inc. price | National Vision Holdings, Inc. Quote

The company’s focus on expanding its total number of stores in 2019 encourages us. Following a formula-based approach, National Vision plans to open around 75 stores in 2019. Management announced a few locations in its pipeline for both 2019 and 2020.

The company intends to launch majority of the new stores focusing on America’s Best brand. It also aims to unveil some new stores for its Eyeglass World brand.

Meanwhile, this leading and rapidly growing optical retailer in the United States has underperformed its industry over the past three months. The stock has lost 14.3% versus the industry’s 7% growth.

National Vision plans to continuously spend on television advertising and digital marketing in order to maintain the comps growth trend. Increasing costs have been weighing on its bottom line. The company’s net margin trend has persisted to be negative over the past two years. Escalating costs are hurting margins, which remain a concern for this company.

Moreover, the company’s high dependence on a limited number of suppliers exposes it to concentration of supplier risk.

Other Key Picks

A few other top-ranked stocks in the broader medical space are Medtronic MDT, Baxter BAX and NuVasive NUVA, each carrying the same solid Zacks Rank as National Vision. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Medtronic’s long-term earnings growth rate is expected at 7.13%.

Baxter’s long-term earnings growth rate is projected at 12.8%.

NuVasive’s long-term earnings growth rate is estimated to be 12.75%.

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